Creating wealth takes time, effort and discipline, and also a willingness to defer spending and take calculated risks. It is not always a straight line process. In fact, it can be a bit like playing monopoly. Every now and then you draw a bad card that costs you a lot of money or sends you straight to jail!
Wealth protection is just as important as wealth creation, yet it is often overlooked. Keeping wealth safe is not just a matter of making sure your money is kept in the bank or in other secure investments. Financial risk is only one of the many threats to wealth. In business, it is good practice to do a risk audit – that is, to identify the risks faced by the business and look at what methods are available to minimise or mitigate these risks. The same approach can be taken with personal affairs. The starting place is to note the key risks to personal wealth. Then consider the size of the potential negative impact associated with each risk, how likely it is to occur, and what can be done to reduce or eliminate the risk. Sometimes there is a cost associated with reducing or eliminating risk, such as insurance or legal costs, and this needs to be weighed up in relation to the extent and likelihood of possible loss. Clearly, a high risk of a large loss would probably justify the outlay of protective measures, while a low risk of a small loss may not.
Risks to personal wealth can include the risk of illness or death of yourself or a close family member, the risk of loss of property through theft or disaster, the end of a relationship, investment risk, and risks associated with being a business owner or director. Don’t ignore them!